Friday, May 27, 2011

Auto parts maker Delphi Automotive has been in bankruptcy purgatory for years. That's about to change. The company filed for an initial public offering on Wednesday and set an initial $100 million target. This is an important development mainly due to the high concentration of prominent hedge funds that own stakes.

Heavy Hedge Fund Involvement

David Tepper's Appaloosa Management was originally one of the main sponsors of Delphi's reorganization plan in 2005 but pulled out and things fell through. Fast forward four years later and new hedge fund owners Silver Point Capital and Elliott Management took control of the situation as the company finally looked to complete the cleansing process through reorganization.

Greenlight Capital Takes Stake

As far as other current hedge funds involved, David Einhorn's Greenlight Capital recently took a stake in Delphi as noted in their recent letter to investors. The hedge fund wrote,

"Delphi Automotive is an automotive supplier that produces a broad range of highly engineered products for powertrain, safety, electronic and thermal technology solutions. Delphi exited bankruptcy in October 2009 and has emerged in very good shape, following an aggressive restructuring in which it sold 11 businesses, closed 41 sites, reduced its U.S. workforce from 46,000 to 5,000 and moved its hourly pension plan and other post- employment benefits obligations to the Pension Benefit Guaranty Corporation (PBGC) and General Motors (GM). In addition, emerging markets have increased from 7% to 25% of sales.

The Partnerships established a position at an average price of $19,228 per share. To date, Delphi’s multiple class ownership structure has limited its ability to go public. However, on March 31, 2011, Delphi repurchased shares from both GM and the PBGC for $4.4 billion, thereby creating a one class structure. There has since been press speculation that Delphi will pursue a public offering later this year. As Delphi potentially re-enters the public market, we hope that the company will gain value recognition for the significant progress it has made through its restructuring. Delphi stock ended the quarter at $21,500 per share."

Dan Loeb's Third Point Owns Large Position

As noted in our recent post on Third Point's latest exposure levels, Delphi was one of their top positions as of the end of April. The hedge fund has owned a sizable stake for quite some time, so it will be interesting to see when they decide to eventually shed their stake.

Perry Capital Involved in the Past (Still Involved?)

Perry Capital originally purchased claims in Delphi late in the bankruptcy process. And in its fourth quarter 2010 letter to investors, the hedge fund had this to say about its stake in auto parts maker: "Our position in Delphi equity continued to march higher. The company has performed quite well since exiting bankruptcy and, despite significant appreciation, we continue to hold our position. Delphi is well positioned as an automotive supplier - diesel, power train, safety and infotainment - with the best balance sheet in the industry."

When Will They Cash In?

Given that Delphi is not yet publicly traded and that Perry hasn't mentioned it in other letters, it's hard to say if they still own a position two quarters later. Greenlight's commentary, on the other hand, makes it sound like they will hold through the IPO in hopes of further upside through market revaluation.

Regardless, there are a lot of other hedge funds involved that are glad to finally see Delphi emerge from its drawn-out bankruptcy process and go public. The question is, how many of them will be cashing in?

Auto parts maker Delphi Automotive has been in bankruptcy purgatory for years. That's about to change. The company filed for an initial public offering on Wednesday and set an initial $100 million target. This is an important development mainly due to the high concentration of prominent hedge funds that own stakes.

Heavy Hedge Fund Involvement

David Tepper's Appaloosa Management was originally one of the main sponsors of Delphi's reorganization plan in 2005 but pulled out and things fell through. Fast forward four years later and new hedge fund owners Silver Point Capital and Elliott Management took control of the situation as the company finally looked to complete the cleansing process through reorganization.

Greenlight Capital Takes Stake

As far as other current hedge funds involved, David Einhorn's Greenlight Capital recently took a stake in Delphi as noted in their recent letter to investors. The hedge fund wrote,

"Delphi Automotive is an automotive supplier that produces a broad range of highly engineered products for powertrain, safety, electronic and thermal technology solutions. Delphi exited bankruptcy in October 2009 and has emerged in very good shape, following an aggressive restructuring in which it sold 11 businesses, closed 41 sites, reduced its U.S. workforce from 46,000 to 5,000 and moved its hourly pension plan and other post- employment benefits obligations to the Pension Benefit Guaranty Corporation (PBGC) and General Motors (GM). In addition, emerging markets have increased from 7% to 25% of sales.

The Partnerships established a position at an average price of $19,228 per share. To date, Delphi’s multiple class ownership structure has limited its ability to go public. However, on March 31, 2011, Delphi repurchased shares from both GM and the PBGC for $4.4 billion, thereby creating a one class structure. There has since been press speculation that Delphi will pursue a public offering later this year. As Delphi potentially re-enters the public market, we hope that the company will gain value recognition for the significant progress it has made through its restructuring. Delphi stock ended the quarter at $21,500 per share."

Dan Loeb's Third Point Owns Large Position

As noted in our recent post on Third Point's latest exposure levels, Delphi was one of their top positions as of the end of April. The hedge fund has owned a sizable stake for quite some time, so it will be interesting to see when they decide to eventually shed their stake.

Perry Capital Involved in the Past (Still Involved?)

Perry Capital originally purchased claims in Delphi late in the bankruptcy process. And in its fourth quarter 2010 letter to investors, the hedge fund had this to say about its stake in auto parts maker: "Our position in Delphi equity continued to march higher. The company has performed quite well since exiting bankruptcy and, despite significant appreciation, we continue to hold our position. Delphi is well positioned as an automotive supplier - diesel, power train, safety and infotainment - with the best balance sheet in the industry."

When Will They Cash In?

Given that Delphi is not yet publicly traded and that Perry hasn't mentioned it in other letters, it's hard to say if they still own a position two quarters later. Greenlight's commentary, on the other hand, makes it sound like they will hold through the IPO in hopes of further upside through market revaluation.

Regardless, there are a lot of other hedge funds involved that are glad to finally see Delphi emerge from its drawn-out bankruptcy process and go public. The question is, how many of them will be cashing in?

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